Management Rights

For all things Management Rights, you’ve come to the right place. At RAAS, Management Rights are in our DNA!

5 Top Tips for Buying Management Rights

  1. Management Rights is a specialist business. Having a trusted team of experts on your side is a must – think specialist brokers (RAAS), lawyers, accountants and financiers. Only deal with experienced specialist advisers.
  2. Do as much research as you can. Research the industry, attend seminars conducted by RMEG (Resident Managers Education Group) and speak with specialist advisers. They can and they will explain all you need to know about the industry.
  3. Understand your financial capacity and check that you can borrow to buy. There is nothing more frustrating than finding a great buy but not being in a position to make it happen. Consider what you can afford and what you can service and don’t leave anything to chance. Speak confidentially with a specialist finance broker or banker up front, to firmly establish your price range.
  4. Keep an open mind about the size of the manager’s unit. If you are selling a four-bedroom home to finance your purchase, you are unlikely to find a manager’s unit of similar size. Yes, you may have to sell some furniture!
  5. Don’t succumb to the dreaded “paralysis by analysis” and not decide. While there are plenty of options out there the best decision may require you to align the “must have” list with what is available.

Buying, or selling, Management Rights is a complex transaction and requires experienced experts on your side. The team at RAAS having been helping buyers and sellers make great Management Rights decisions for over a decade. We are here to help and welcome the opportunity to be of assistance.

The true value of Management Rights

Establishing a Price for a Management Rights Business…the Multiplier.

Used by banks, valuation firms and buyers and sellers alike the multiplier is a long-established procedure used to value Management Rights businesses.

The value of a Management Rights complex is arrived at by adding the value of the manager’s unit to the value of the business.

The value of the unit is found by comparing it with sales of similar units in the complex, or adjoining complexes. It is common for the manager’s unit to attract a small premium for both the additional office facility and because it is generally the only dwelling in the complex from which a letting business can be conducted. In most cases you cannot buy the business without buying the unit.

The value of the management rights business is determined by using a “multiplier” on the net profit. But what is a “multiplier” and how and why is it used?

With commercial real estate, people are really buying the security of a future income stream. The more work or risk involved in an investment, the higher the return expected. Whereas, a low risk low effort investment in an office building with a 25-year lease to the government might command a 6% return, a business subject to market vagaries and personal effort might command a 25% return on investment.

Let’s say a management rights buyer wants to offer a price that will show him a 25% return on the business part of the investment. To determine what to pay, he must multiply the net return per annum by 100 and divide by 25. So, if the business nets $100,000 per annum, he will calculate the business price to be $100,000 multiplied by100 divided by 25 to equal $400,000.

A $100,000 return for a $400,000 business is a 25% return.

All the Management Rights industry does is to simplify the math a little, by dividing the 25 into 100 and come up with 4 and this is what we call a “Multiplier.”

So, the new calculation is the multiplier times the net return or $100,000 x 4 equaling $400,000. That is to say, a 25% return is a multiple of 4; a 20% return is a multiple of 5 and a 16.66% return is a multiple of 6.

How is a multiplier set? The size of the multiplier is set by market forces and is a very subjective figure. (Your RAAS RIGHTS salesperson will be able to give you some examples of what multipliers were achieved on similar listings at sale.)

What can impact the multiplier?

  • Interest rates
  • Legislation, or pending legilslation, that may impact (adversely) the industry
  • The scale of the business, (net of $300k versus net of $80k)
  • Remaining term of the agreement - this can have a major impact if the balance of the agreement is too short. IE. An Accommodation Module with only 12 years left. FYI – typically a bank won’t lend if the remaining term on a Standard Module is or goes below 7 years.
  • The type of the complex. A retirement complex involving the provision of meals attracts a lower multiple